As an insurance agent, I get asked the same questions about homeowner’s insurance over and over. And for good reason. There are some parts of a homeowner’s policy that can be downright confusing.
Let’s talk about them.
Your Dwelling Coverage Amount
When you’re insuring your home, you’re not just insuring the loan from the bank. What you’re actually covering is the amount it would cost to rebuild your home in the event of a total loss. In today’s housing market, this amount is usually quite a bit more than what you paid for your home.
A replacement cost estimator is performed to determine the rebuild amount. This factors in all of the building materials and features of your home. It’s important to let your agent know if there have been any big renovations or updates, so they can factor those into the cost as well.
If your home was built pre-1930s, then the amount of coverage may be substantially higher. The reason for this is the building materials used in a pre-1930s home are more expensive than the materials used in modern homes.
Replacement Cost vs. Actual Cash Value
In order to lower their premium, a lot of consumers make the mistake of taking out an actual cash value policy, rather than a replacement cost policy.
Replacement cost is pretty much self-explanatory. In the event you need to file a claim, you’ll be reimbursed the replacement cost of the damaged items, or area, minus your deductible.
With an actual cash value policy, you’ll get replacement cost minus depreciation. This means that in the event of a claim, you’ll be paid much less than if you had replacement cost. When you go to replace or repair your items, the difference will come out of your pocket.
Most homeowner’s policies don’t cover water back-up from sewers or drains, earthquakes, fungi, or mold without a specific endorsement (add-on) added to your policy. Depending on where you live, these can be important coverages. If you have a finished basement, water back-up coverage is highly recommended.
If there are certain coverages you’re worried about not having, you need to talk to your agent.
Your deductible is the amount you have to pay in the event of a claim. Your deductible is subject to every claim you file.
For example, you have roof damage in the amount of $5,000. You have a $1,000 deductible, so the insurance company pays you $4,000, and you cover the other $1,000.
If you have damage that totals $1,050, and you have a $1,000 deductible, the insurance company will only pay you $5o. In this instance, you shouldn’t file a claim. Filing a claim will make your insurance increase, and it’ll stay on your record for 3-5 years. The $50 claim wouldn’t be worth it.
Homeowner’s insurance can be a bit tricky, which is why you need an insurance agent you can trust. Be sure to review your policy at least once a year to make sure you have the coverage that you need.
What other questions do you have about homeowner’s insurance?